BANK RECONCILIATION STATEMENT

                                                  INTRODUCTION:

When you receive your bank statement each month, you will notice that the ending balance per the bank statement does not match the ending balance per the general ledger's cash account.For example, checks written and recorded in the general ledger on the last day of the month did not clear the bank until the third or fourth day of the following month.If it does not agree it means that either some cash transactions have been omitted from the cash book or an amount of cash has been stolen or lost. The reason for the difference is ascertained and cash book can be corrected.  the bank balance as shown by the cash book and bank balance as shown by the bank statement seldom agree.a statement is prepared called bank reconciliation statement to find out the reasons for disagreement between the bank statement balance and the cash book balance of the bank.

some differences may occur in reconciliation statement such as :


                                           Adjusting the Balance as per Bank
1-outstanding checks:
                           Outstanding checks represent checks written by the business and recorded in the general ledger but not cleared by the bank.
2-Deposits in Transit:
                          When deposits are made at the end of the month, the bank may not post the deposit to your account until the next month.

3-Bank errors:
                          These mistakes made by the bank.Bank errors could include the bank recording an incorrect amount, entering an amount that does not belong on a company's bank statement, or omitting an amount from a company's bank statement. 


                                           Adjusting the Balance per Books
1-Bank service charges:
                          The  fees deducted from the bank statement for the bank's processing of the checking account activity .

2- NSF check & fees:
                         An NSF check is a check that was not honored by the bank of the person or company writing the check because that account did not have a sufficient balance. As a result, the check is returned without being honored or paid.



so the  the Bank Reconciliation Statement explains the difference between cash reported on bank statement and cash balance in depositors accounting records.

International Accounting Standard 2

Inventories

------------------------------------------------

Objective:

• The objective of IAS 2 is to prescribe the accounting treatment for inventories.
• It provides guidance for determining the cost of inventories and for subsequently recognizing an expense, including any write-down to net realizable value.
• It also provides guidance on the cost formulas that are used to assign costs to inventories.

Scope:
The standard is applicable to inventories other than the following:

• Work in progress arising under construction contracts, including directly related service contracts.
• Financial instruments.
• Biological assets related to agricultural activity and agricultural produce at the point of harvest (to be measured at their net realizable value)

Definition:

The following terms are used in this Standard with the meanings specified:

Inventories are assets:

• Held for sale in the ordinary course of business
• In the process of production for such sale
• In the form of materials or supplies to be  consumed in the production process or in the rendering of services.

Net realisable value:

It is the estimated selling price less the cost to complete and sell.

Fair value:

Fair value is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction.
Measurement of inventories:
Inventories shall be measured at the lower of cost and net realisable value.
Cost of inventories:

• Costs of purchase (including taxes, transport, and handling) net of trade discounts received.
• Costs of conversion (including fixed and variable manufacturing overheads).
• Other costs incurred in bringing the inventories to their present location and condition.

Costs not to be included in the inventory cost:

• Abnormal losses of material, labour etc.
• Storage costs unless these are necessary in the production process.
• Administrative overheads that are not to bring the inventories at present location or condition.
• Selling costs.

Cost of inventories of service providers:

Only the labor cost and the cost of personnel directly involved in providing services.

Cost of agriculture produce:

Agricultural produce harvested from the biological assets is measured as fair value less estimated point of sale cost at the point of harvest.

Techniques of measurement of cost:

• Standard cost method
• Retail method

Cost Formulas:

• Items which are not ordinarily interchangeable should be valued at individual cost basis.
• For interchangeable items, FIFO (First In First Out) and WACO (Weighted Average Cost)are benchmark treatment.

Write-Down to Net Realisable Value:

• NRV is the estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated costs necessary to make the sale.
• Any write-down to NRV should be recognized as an expense in the period in which the write-down occurs.
• Any reversal should be recognized in the income statement in the period in which the reversal occurs.

Recognition as an expense:

The inventory cost should be recognized as an expense in the period in which their revenue is recognized  (IAS 18).

Adjusting Entries ..Case 4.1 "Financial and Managerial Accounting by Williams et all 15e"

A.  No adjusting entry is required because the revenue has already been earned prior to the ending period.

B : 3 months revenue was collected in advance on December 1<sup>st

Effect :</sup> decrease the liability, increase the revenue earned and increase in owner’s equity.

C :This entry is required to record the revenue which we have earned
Effect : increase in asset, increase the revenue and increase in owner’s equity.

D : No adjusting entry is required because insurance policy will start from 2, January 2010 and           payment of unexpired insurance has already been recorded .


E : this entry entry is required because the depreciation of asset recorded 
Effect : it increase  the expense , decrease in revenue and  the owner’s equity also decreases .


F  : this entry required because salaries have been earned by employes but not yet have been recorded.
Effect : it will increase liabilities decrease in revenue and  owner’s equity also decrease.

This photo is of just a simple magnet....but it beautifully illustrates the Magnetism of the Kabah. Subhan ALLAH .

Burraq: Pakistan’s First Domestic Made Armed Drone.

Dont think tht is a CNG / elec loadshedding in Pakistan only, See the fate of NATO fastfood in Afghanistan

Closing Entries

The closing entry is used to transfer data in the temporary accounts to the permanent balance sheet or income statement accounts.so at the end of accounting period necessary to close the temporary accounts and this balance transfer in to income summary and retained earning account .

closing entries are :

1-debiting revenue and crediting income summary.

2-by debiting income summary and crediting expense.

3-by debiting income summary and crediting retained earnings.

4-by debiting retained earnings and crediting dividends.

• close revenue to income summary :

to close revenue accounts we will see revenue accounts with credit balances .

Date          Account                                  Debit                Credit

XX                     Revenue                           XX

                                       Income summery                            XX

• Close expense to income summary :

to close the expense account you have to credit your all expense 


Date           Account                                 Debit                   Credit
XX                     Income summery                 XX
                                        expense                                          XX

• Close income summary to retained earning :

to close the income summery account you have to debited income summery account and credited the retained earning accounts .

Date           Account                                 Debit                    Credit
XX                   income summery                  XX
                                   retained earning                                     XX

and if we get a debit (lose) balance then The income summary account  is closed to retained earnings.

Date         Account                                  Debit                    Credit
XX                  Retained Earning                   XX                        
                                 Income summery                                    XX

• Close dividend to retained earning:

the dividends account is closed to retained earnings and make its balance zero.

Date       Account                               Debit                        Credit
XX                 Retained earning                   XX
                                   Dividend                                                  XX


        

Welcome